Despite 1Q16 volume growth of 4% YoY, revenue fell 17% YoY onthe collapse in freight rates (-21% YoY) due to overcapacity
We expect bunker cost to increase HoH in 2H16, but mildrecovery of freight rates will not be able to lift gross margin.Expect FY16E GPM to drop 1ppt to 10.6%
Stock’s valuation undemanding at 0.5x FY16E P/B or 21-30%discount to its peers, close to crisis level. TP at HK$43.50 isbased on 0.7x FY16E P/B
Modest recovery in TP/TA spurred volume by 4.2% YoY
Thanks to the 6.3% YoY growth in loadable capacity, OOIL’s overall liftingin 1Q16 came in at 1.4 mn TEUs, up 4.2% YoY or -1.0 QoQ, mainlydriven by the recovery in TP and TA routes which increased 12.4% YoYand 10.8% YoY respectively. AE route remained to be theunderperforming segment and recorded 11.1% YoY decline, but a mild3.5% QoQ rebound. We believe the weak trade flow of AE routes waspartly due to the weak Euro and overcapacity during the period.
Expect bunker cost to increase in 2H16, GPM remainsunder pressure
1Q16 revenue at US$1,114 mn, down 17% YoY, due to lower bunkercosts and lower bunker surcharges. All trade routes registered YoYdecline in revenue. AE routes, again, saw the worst performance with a36% YoY decline in revenue. Average freight rate remained underpressure in 1Q16, down 21% YoY to US$811/TEU from 1Q15, depressedby the imbalanced supply and demand. We expect bunker price toincrease on HoH basis in 2H16, but mild recovery of freight rate will notable to offset higher bunker cost due to sluggish volume. We estimateFY16E gross margin to decline 1ppt to 10.6%.
Maintain BUY on undemanding valuation
We estimate revenue/earnings to retreat 8.7% YoY/16.7% YoY in FY16E,dragged down by lower rates. We retain BUY rating on OOIL given itsundemanding valuation of 0.5x (close to the level during the financialcrisis) FY16E P/B, while its peers are trading at an average of 0.7xFY16E P/B. TP of HK$43.50.